Aussie Dollar: Still Friendless

Australian one-hundred dollar banknotes. It’s latest reprieve against the U.S. dollar could prove to be short-lived.

Bloomberg News

The Australian dollar has finally found its footing against the greenback after falling precipitously since the middle of April but the move by one of the country’s biggest banks to cut its Aussie dollar forecasts for the second time in a month offers a reminder that the bruised currency is not out of the woods.

With so many traders already positioned for a fall in the Aussie, new sellers are few and far between. That has given the currency some respite after a 13% drop against the U.S. dollar that was triggered by expectations the Reserve Bank of Australia would lower rates, a cooling mining investment boom and a possible slowdown in China–Australia’s largest export market.

But strategists believe it’s only a matter of time before the Australian dollar loses its balance again, knocked by expectations of that the U.S. Federal Reserve will start reeling in its economic stimulus measures by the end of this year.

National Australia Bank said Thursday that the Australian dollar’s value against the dollar does not yet fully reflect the extent of the rise in U.S. yields.

“The Fed’s return to the (early stages) of policy normalcy in itself justifies an AUD/USD in the low $0.80s,” says Ray Attrill, head of currency strategy at NAB. Right now, it trades at around $0.93.

The bank has again lowered its forecasts for the Australian dollar, having previously cut them on June 7. It now sees the Aussie trading at $0.88 against the U.S. dollar by the end of this year and at $0.83 by the end of 2014. It previously had an end-2013 forecast of $0.93 and an end-2014 view of $0.87.

That would be a slower pace of depreciation than the currency’s recent tumble but it seems the Aussie dollar will remain out of favor for some time to come.